uploads/// Month Treasury Bill Issuance versus Bid Cover Ratio

Why the Bid-to-Cover Ratio Fell for the 26-Week T-Bills Auction


Apr. 22 2016, Updated 8:08 a.m. ET

26-week T-bills auction

The U.S. Department of the Treasury held the weekly 26-week Treasury bills, or T-bills, (BIL) (MINT) auction on April 11. T-bills worth $4 billion were on offer—the same as the previous auction.

The bid-to-cover ratio fell 6.6% from the previous week. It came in at 3.8x for the April 11 auction. In 2015, the bid-to-cover ratio averaged 4.0x. The bid-to-cover ratio shows the overall demand for the auction. The demand for safe-haven T-bills fell as stock markets rallied due to the rise in oil prices.

Mutual funds like the PIMCO GNMA Fund – Class A (PAGNX) and the Prudential Government Income Fund – Class A (PGVAX) provide exposure to T-bills.

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Yield analysis

T-bills don’t pay a coupon. They’re offered at a discount to face value. They’re redeemable at par on maturity. The high discount rate for the April 11 auction fell and came in at 0.35%—lower than 0.39% in the previous week.

Market demand rose

Fundamental market demand rose from 39.4% in the previous week to 43.4% last week. Accepted indirect bids rose to 34.9% week-over-week from 31.9% in the previous week.

Meanwhile, the percentage of direct bids rose to 8.6% week-over-week from 7.4% a week ago. Direct bids include bids from domestic money managers like Invesco (IVZ) and Wells Fargo (WFC).

Due to the rise in market demand, the share of primary dealer bids fell to 56.6% of the auction from 60.6% in the previous week. Primary dealers are a group of 22 authorized broker-dealers. They’re obligated to bid at US Treasury auctions and take up excess supply. They include firms like Goldman Sachs (GS) and Citigroup (C).


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